Good money after bad?

Finally, it looks like the eighteen-year saga of Portland-area politicians trying to saddle taxpayers with building a convention center headquarters hotel may be grinding to a halt.

Last Thursday, the Metro Council bowed to political and economic reality and voted unanimously to postpone their decision about whether to spend $600,000 on a financial study of the proposed hotel.

A little history: For eighteen years we’ve heard that the Oregon Convention Center needs a headquarters hotel nearby to make it successful. The $90 million original facility, owned by Metro, never covered its costs. Voters turned down a property tax increase to fund an expansion, so the powers-that-be issued $116 million of municipal bonds to enlarge the building. Occupancy rates dropped and deficits continued, just like national critics predicted.

The city of Portland and its Portland Development Commission recently passed on the opportunity to saddle their taxpayers with the cost of a headquarters hotel. Metro then stepped up to see if it could figure out how to salvage its convention center without taking too much of a bath on the hotel. Studies were commissioned and comments solicited. The “experts” concluded that a privately owned hotel would require too large a public subsidy, so rather than drop the idea then and there, Metro decided to focus all its energy on raising funds to build a publicly-funded hotel that would be privately operated.

The cost of a publicly funded 600-room headquarters hotel may exceed $244 million. But even at that lofty price tag Metro learned that the hotel would likely run in the red to the tune of $7.8 million to $10.7 million every year for its first eight years. How to cover that gap has proven to be quite a challenge.

On September 20th Metro held a public hearing on the resolution to go ahead with a detailed financial plan for the project. The hearing went on for four hours as person after person testified on the issue. The usual suspects supported the hotel: politicians, the tourist industry, meeting planners, union labor and even some local hotel operators, although most hoteliers understandably appear to oppose it.

Critics, including me, warned the council not to throw good money after bad on a project that the economic development literature says is likely to fail. One local man asked the council to do what he and other homeowners have to do when they want to remodel their homes. If the hotel is such a good deal, he suggested that private hotel builders should pay for it themselves. “Refinance your house and go for it,” he said. “Don’t let me hold you back.”

Local businessman Roy Jay, active in the convention and tourist industry, asked the critics to stop complaining and get behind the project. He made the startling claim, “We are team players in this city.” Luckily, that statement didn’t detour the next speaker, local economist Joe Cortright, who presented a nine-page fact-filled analysis which raised serious doubts about the glowing claims made for the hotel. Cortright was there representing himself, not a client, and he came across with a level of credibility that seemed to change the whole tenor of the hearing.

At one point, he quoted part of my earlier testimony advising the council not to “throw good money after bad.” That prompted councilor Robert Liberty to ask him, in a manner almost reminiscent of the McCarthy era, are you now or have you ever been a member of Cascade Policy Institute? Cortright answered that question with a firm No. So, here was a respected economist, not known for any radical anti-government views, agreeing with the free-market Cascade Policy Institute that this project was not economically viable.

As we gathered again this past Thursday to hear the Metro Council debate and vote, it seems the critics had carried the day to the extent that there were not enough votes to pass the resolution. An amendment was offered, asking Metro staff to spend the next five weeks in negotiations with potential “partners” who would be asked to provide political and financial support to ensure that Metro taxpayers wouldn’t be on the hook for any shortfalls. “Partners” might include the state, city of Portland, Multnomah County and the hotel industry itself.

The revised resolution passed unanimously. Staff must come back to the council by November 1st with the results of their “partner” negations. The Catch-22 here seems to be that councilors don’t want Metro taxpayers to be on the hook for any shortfalls, yet the only way that seems doable is if other “partner” taxpayers do go on that hook. What was not mentioned is that in most cases, Metro taxpayers are also local city, county and state taxpayers. The intent of the resolution surely could not be to hold taxpayers harmless from hotel funds coming out of their right pocket (Metro), just to be taken out of their left pocket (state, city, county, etc.).

The resolution, hopefully, was simply a way for the Metro Council to save face: “We tried really hard, but those mean politicians in other jurisdictions just wouldn’t go along with this unsound idea.”

If my analysis is correct, the eighteen-year saga of the convention center headquarters hotel may soon come to a close. As I told the council in my testimony, I understand that they have hard decisions to make. I know that they own the Oregon Convention Center and must figure out what to do with it. My advice was to study how to get out of the convention business altogether. If the business is really a benefit to the region, then there must be a way for private interests to own and run it. If not, then it’s time to stop pouring good taxpayer money after bad. Come November 1st we’ll see just how willing Metro’s potential “partners” are to share the burden without putting any local taxpayer funds at risk. My bet is the “partner” list will be very sparse.